The Organizational Ecology of a Technological System

Copyright Cornell University, Johnson Graduate School. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights or concerns about this content should be directed to Customer Service.

This paper investigates organizational mortality in the early American telephone industry, in which thousands of companies proliferated and failed under conditions of technological change. Drawing on the theory of community ecology, it is predicted that when technologies are systemic, technological change does not necessarily favor advanced organizations. Instead, mutualism is predicted among both advanced and primitive firms, as long as they are technologically standardized and differentiated. Competition is expected when organizations are technologically incompatible or noncomplementary. The hypotheses are supported by dynamic models of organizational mortality, estimated using archival data describing the life histories of all telephone companies that operated in Pennsylvania up to 1934 and in southeast Iowa from 1900 to 1930.(*)

Often there is no clear boundary around an organization's technology. Separate chemical refiners physically connect to each other's facilities, computer manufacturers assemble hardware systems using components produced by various organizations, and transportation companies ship standardized containers to and from one another. Because of this, many technologies can be thought of as systems that cut across formal organizational boundaries. How does technological change in such a system affect organizational interdependence? When does it generate competition? Does it ever increase "mutualism," or positive interdependence, among organizations? If we knew the answers to these questions, then we could predict when an organization in such an industry improves or threatens its viability by changing its technologies. We could also predict when an organization's viability is improved or threatened due to technological change by others. However, the literature on technological change has paid little attention to the unique properties of systemic technologies. Consequently, despite the potential value of such predictions, these questions have remained unanswered.

They are addressed in this study as part of a broader investigation of the early American telephone industry. In the first three decades of this century, thousands of telephone companies co-existed under conditions of technological change. These companies often connected their systems, resulting in mutualism as they decreased each other's failure rates. But in other cases they competed, increasing the chances that one or another would fail (Barnett and Carroll, 1987). This paper investigates how two important developments in power and transmission technology affected these relations.

Hawley's (1950) ecological framework suggests that systemic technologies can be usefully studied in terms of their more elemental systems. These elemental systems are distinguished according to whether they are uniform or differentiated. Uniform systems require standardization throughout, as with the operating system of a computer. Differentiated systems, in contrast, comprise parts that work together because they are different in a complementary way, as with the hardware components of a microcomputer. Because it is based on ecological principles, this approach differs fundamentally from the prevailing Schumpeterian approach to the study of technological change and competition.

Technological Superiority and Competition

It is commonly thought that technological change generates competition and that this competition works to the benefit of technologically advancing organizations. The idea is often attributed to Schumpeter (1950: 84):

... in capitalist reality as distinguished from its textbook picture, it is not [price] competition which counts but the competition from ... the new technology ... -- competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.

From this view, an industry's prevailing technology is conceived as a benchmark (Schumpeter, 1934). Organizations that do not keep up with this benchmark are at a competitive disadvantage. And because technological change advances this benchmark, it generates competition that favors technologically superior organizations.

This reasoning remains largely unquestioned in the various approaches to the study of technological change. At the organization level of analysis, Thompson and McEwen (1958) and Dill (1958) argued that managerial discretion is constrained by competition from technologically advancing organizations. Burns and Stalker (1961) and Hage and Aiken (1969) considered technological competition to be a problem of structural adaptation. Pfeffer and his colleagues found that organizations use bridging strategies, such as executive recruitment and joint ventures, to protect themselves from competition due to technological change (Pfeffer and Leblebici, 1973; Pfeffer and Nowak, 1976).

A common subject of contingency theory research was the problem of coordinating technological systems (Woodward, 1965; Perrow, 1967; Hickson, Pugh, and Pheysey, 1969). But as Scott (1975) observed, contingency researchers were concerned with a "rational" solution to the problem of technological interdependence. This confined attention to the case of a single organization coordinating the entire system. Thompson (1967: 74), drawing from Chandler (1962), stated so explicitly. He argued that, under "norms of rationality," when an organization's "technical core" is not "isolated from boundary spanning" it will attempt to coordinate the entire operation using an "overarching" hierarchy. In this way, contingency theory assumed away the problem of multiple organizations within a common technological system.

More recent work extends Schumpeter's original theme, specifying the conditions under which organizations are likely to become technologically superior. Brittain and Freeman (1980) found that "r-form" organizations, which require less initial capital and have simple formal structures, proliferate more quickly into "niches" (market segments) opened by new technologies. As a result, this organizational form gains competitive advantage by remaining technologically advanced. Aldrich and Whetten (1981) argued that "dominant" organizations, which are powerful due to network centrality, resist technological change unless it works to their competitive advantage. And Tushman and Anderson (1986) found that whether an organization can gain technological superiority depends on whether the new technology enhances or destroys the organization's existing competencies.

Schumpeter has also greatly influenced research on the technological development of industries. It is widely held that new, radically superior technologies displace old, inferior ones--a process described by Schumpeter (1950) as "creative destruction." Following this reasoning, Nelson and Winter (1982) and Dosi (1984) conceived of the status quo as a "technological trajectory" that increases gradually until a major advancement introduces a new trajectory. Tushman and Anderson (1986) presented empirical evidence of such development in three industries. They found that long periods of gradual technological change were occasionally interrupted by "technological discontinuities," which redefined the dominant technology of each industry, and Anderson (1988) found that organizational mortality rates were higher during these technological reorientations.

Overall, there is broad consensus that technological change causes competition as advancing organizations displace outdated ones. The idea is both intuitively appealing and empirically supported, so its popularity is not surprising. However, the history of the American telephone industry suggests that this view may not apply to all types of technological change.

COMPETITION, MUTUALISM, AND TELEPHONE TECHNOLOGIES

The American telephone industry expanded rapidly around 1896. Thousands of independent telephone companies were founded after two Bell Telephone Company patents expired, ending 15 years of patent monopoly (Danielian, 1939). By 1902, telephone companies numbered about 9,000 nationwide (U.S. Bureau of the Census, 1906), and by 1903 the independent companies controlled more of the market than did the Bell System (Brooks, 1976).

The two samples collected for this study reflect the national pattern. Figure 1a illustrates the population of telephone companies that operated in Pennsylvania at any time from the commercialization of the telephone in 1877 until 1934. Among the 707 organizations in this sample, 431 (61 percent) terminated operations by 1934. Figure 1b illustrates the timing of these deaths.

A secondary sample, illustrated in Figure 2a, includes the 298 companies that operated in southeast Iowa at any time from 1900 to 1930.(1) As Figure 2b illustrates, 129 (43 percent) of these organizations dissolved by the end of the period. As these samples illustrate, telephone companies faced a great danger of failure during the first decades of this century. Coincidentally, they faced an environment of dramatic technological development.

Technological Change

According to the historical record, two technological changes were especially important during this period. Transmission technology was revolutionized by the use of wire coils to increase the inductance of the transmission line. This innovation, known as "line loading," reduced the proportion of the telephone signal wasted as heat energy during transmission. As a result of loading, the range of a central office increased from 30 to over 300 miles (Bell Labs, 1975). This development made possible long-distance systems, as companies expanded their networks geographically to include multiple exchanges (Wasserman, 1985). This innovation was among the most important in the history of the industry because of its profound effects on the range, cost, and quality of service, as Wasserman (1985:5) explained:

This change in the quality of the line profoundly altered the commercial development of long-distance communications; it lowered the cost of aerial cable lines because a lighter grade of wire could be used, and it extended the distance over which efficient transmission could take place. …

Anand Swaminathan Abstract We hypothesize that some overlap of production between and within product generations reduces firm mortality, as it allows firms to retain valuable routines. Excessive overlap, however, becomes harmful. An analysis of the effects of new product introduction on mortality…

David Knoke. Boulder, CO: Westview Press, 2001. 474 pp. $28.00, paper. According to the dust jacket, this book was written for advanced undergraduate students in sociology, public policy, and business management courses. It also targets graduate students, scholars, and researchers. In my view,…

At Cengage, privacy is important to us, as such we have a Global Privacy Program in order to comply with regulations that apply to us, our notices, and agreements with our customers.
In order to protect and use data in accordance with these regulations, our polices and notices, we collect the birth year of our users.
For additional questions or concerns please visit www.cengage.com/privacy or contact the Privacy Office, privacy@cengage.com.

Year of birth:

An error has occured, please try submitting again or contact Costumer Service at 1-800-860-9227